BOI Dollar Buy Makes No Dent

YERUSHALAYIM -

A reported purchase of tens of millions of dollars on Tuesday appeared to make no dent in the shekel-dominated exchange rate, Globes reported.

The shekel was flat against the dollar and euro in afternoon inter-bank trading, at NIS 3.488/$ against the dollar and NIS 4.768/€ against the euro.

Last week the Bank of Israel bought $500 million, which registered only a slight, temporary impact on the shekel-dollar exchange rate. There is still talk about setting a shekel-dollar exchange rate floor, but the Bank of Israel opposes the idea.

Atrade said today, “If the Bank of Israel does not take drastic action, the shekel-dollar exchange rate will fall to NIS 3.40/$. In the absence of important macroeconomic figures, foreign investors are struggling to find a clear direction in trading. So long as the shekel-dollar exchange rate is below $3.50/$, the shekel will continue to strengthen.”

Writing in Globes, Yossi Frank, a financial adviser and CEO of Energy Finance, suggested that the Bank of Israel must stop clinging to obsolete solutions. The BOI “continues to naively buy foreign currency, which has not achieved results for a long time,” he said.

Instead, he suggests moving in the opposite direction: “Ministry of Finance economists should conduct a small study to examine what would happen to the economy if the dollar was traded at NIS 4,” he says.

“A depreciation of the shekel would boost exports, create jobs, increase productivity through the resumption of investment in industry, increase tax revenues, rebuild domestic industry and enable it to compete against imports without unnecessary barriers, and swing the Bank of Israel’s profit and loss statements from loss to profits, which will be transferred to the government. The solution is so simple, while you are wracking your brains in the wrong direction.”

Frank concluded with a warning that what happened to emerging market countries that allowed their currencies to strengthen too much could happen to Israel as well.

“In 2013 the shekel was one of the four strongest currencies in the world! Fourth, behind the currencies of Somalia, Uganda, and Iceland,” he noted.